UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~March 25, ~~2016~~2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-14706.

INGLES MARKETS, INCORPORATED

(Exact name of registrant as specified in its charter)

North Carolina		56-0846267
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
P.O. Box 6676, Asheville NC		28816
(Address of principal executive offices)		(Zip Code)

(828) 669-2941

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐(Do not check if a smaller reporting company.)	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

As of ~~August~~May 1, ~~2016,~~2017 the Registrant had ~~13,958,976~~14,071,794 shares of Class A Common Stock, $0.05 par value per share, outstanding and ~~6,300,800~~6,187,982 shares of Class B Common Stock, $0.05 par value per share, outstanding.

INGLES MARKETS, INCORPORATED

INDEX



		Page No.
Part I — Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of ~~June~~March 25, ~~2016~~2017 and September ~~26, 2015~~24, 2016		3

Condensed Consolidated Statements of Income for the
Three Months Ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015~~March 26, 2016		4
~~Nine~~Six Months Ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015~~March 26, 2016		5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ~~Nine~~Six Months Ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015~~March 26, 2016		6

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015~~March 26, 2016		7

Notes to Unaudited Interim Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1413

Item 3. Quantitative and Qualitative Disclosures About Market Risk		2221

Item 4. Controls and Procedures		2221

Part II —– Other Information


Item 6. Exhibits		2322

Signatures		2524

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	June 25,		September 26,		March 25,		September 24,
	2016		2015		2017		2016
ASSETS
Current Assets:
Cash and cash equivalents	$	5,435,005	$	7,505,040	$	6,104,260	$	5,679,509
Receivables - net		72,508,673		66,284,163		63,544,007		61,735,387
Inventories		341,846,076		338,644,128		348,067,707		343,881,078
Other current assets		10,087,625		11,313,152		12,733,545		7,191,465
Total Current Assets		429,877,379		423,746,483		430,449,519		418,487,439
Property and Equipment – Net		1,240,948,398		1,211,458,393
Property and Equipment - Net						1,251,373,614		1,247,881,773
Other Assets		18,860,126		19,623,349		21,369,878		20,109,087
Total Assets	$	1,689,685,903	$	1,654,828,225	$	1,703,193,011	$	1,686,478,299

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	10,683,589	$	11,367,710	$	10,061,559	$	10,000,629
Accounts payable - trade		162,085,483		166,039,952		165,344,222		155,288,402
Accrued expenses and current portion of other long-term liabilities		62,449,995		74,552,234		64,766,470		76,315,606
Total Current Liabilities		235,219,067		251,959,896		240,172,251		241,604,637
Deferred Income Taxes		71,965,000		64,643,000		71,413,000		71,449,000
Long-Term Debt		887,556,544		874,685,817		866,421,839		866,473,465
Other Long-Term Liabilities		35,704,658		34,561,112		38,532,057		36,775,587
Total Liabilities		1,230,445,269		1,225,849,825		1,216,539,147		1,216,302,689
Stockholders’ Equity
Preferred stock, $0.05 par value; 10,000,000 shares authorized; no shares issued		—		—		—		—
Common stocks:
Class A, $0.05 par value; 150,000,000 shares authorized; 13,948,901 shares issued and outstanding June 25, 2016; 13,924,651 shares issued and outstanding at September 26, 2015		697,445		696,233
Class B, convertible to Class A, $0.05 par value; 100,000,000 shares authorized; 6,310,875 shares issued and outstanding June 25, 2016; 6,335,125 shares issued and outstanding at September 26, 2015		315,544		316,756
Class A, $0.05 par value; 150,000,000 shares authorized; 14,071,251 shares issued and outstanding March 25, 2017; 13,966,476 shares issued and outstanding at September 24, 2016						703,563		698,324
Class B, convertible to Class A, $0.05 par value; 100,000,000 shares authorized; 6,188,525 shares issued and outstanding March 25, 2017; 6,293,300 shares issued and outstanding at September 24, 2016						309,426		314,665
Paid-in capital in excess of par value		12,311,249		12,311,249		12,311,249		12,311,249
Retained earnings		445,916,396		415,654,162		473,329,626		456,851,372
Total Stockholders’ Equity		459,240,634		428,978,400		486,653,864		470,175,610
Total Liabilities and Stockholders’ Equity	$	1,689,685,903	$	1,654,828,225	$	1,703,193,011	$	1,686,478,299



	Three Months Ended				Three Months Ended
	June 25,		June 27,		March 25,		March 26,
	2016		2015		2017		2016

Net sales	$	957,177,645	$	945,974,494	$	946,151,967	$	924,312,049
Cost of goods sold		724,323,504		723,810,548		718,066,675		695,593,959
Gross profit		232,854,141		222,163,946		228,085,292		228,718,090
Operating and administrative expenses		199,433,998		190,730,349		203,023,241		196,147,853
Loss from sale or disposal of assets		(1,555,179)		(318,664)
(Loss) gain from sale or disposal of assets						(10,139)		557,409
Income from operations		31,864,964		31,114,933		25,051,912		33,127,646
Other income, net		512,356		522,876		776,316		534,097
Interest expense		11,190,865		10,583,124		11,719,781		11,225,332
Income before income taxes		21,186,455		21,054,685		14,108,447		22,436,411
Income tax expense		8,518,000		7,278,000		4,957,000		8,078,000
Net income	$	12,668,455	$	13,776,685	$	9,151,447	$	14,358,411

Per share amounts:
Class A Common Stock
Basic earnings per common share	$	0.64	$	0.70	$	0.47	$	0.73
Diluted earnings per common share	$	0.63	$	0.68	$	0.45	$	0.71
Class B Common Stock
Basic earnings per common share	$	0.59	$	0.63	$	0.42	$	0.66
Diluted earnings per common share	$	0.59	$	0.63	$	0.42	$	0.66
Cash dividends per common share
Class A Common Stock	$	0.165	$	0.165	$	0.165	$	0.165
Class B Common Stock	$	0.150	$	0.150	$	0.150	$	0.150



	Nine Months Ended				Six Months Ended
	June 25,		June 27,		March 25,		March 26,
	2016		2015		2017		2016

Net sales	$	2,832,603,557	$	2,825,806,017	$	1,928,910,306	$	1,875,425,912
Cost of goods sold		2,145,391,994		2,160,558,522		1,463,740,533		1,421,068,490
Gross profit		687,211,563		665,247,495		465,169,773		454,357,422
Operating and administrative expenses		589,654,137		563,287,200		409,319,456		390,220,140
(Loss) gain from sale or disposal of assets		(934,039)		320,340
Gain from sale or disposal of assets						1,367,978		621,141
Income from operations		96,623,387		102,280,635		57,218,295		64,758,423
Other income, net		1,652,297		1,649,603		1,439,451		1,139,940
Interest expense		34,393,394		34,184,004		23,032,412		23,202,529
Income before income taxes		63,882,290		69,746,234		35,625,334		42,695,834
Income tax expense		23,876,000		26,629,000		12,650,000		15,358,000
Net income	$	40,006,290	$	43,117,234	$	22,975,334	$	27,337,834

Per share amounts:
Class A Common Stock
Basic earnings per common share	$	2.03	$	2.19	$	1.17	$	1.39
Diluted earnings per common share	$	1.98	$	2.13	$	1.13	$	1.35
Class B Common Stock
Basic earnings per common share	$	1.85	$	1.99	$	1.06	$	1.26
Diluted earnings per common share	$	1.85	$	1.99	$	1.06	$	1.26
Cash dividends per common share
Class A Common Stock	$	0.495	$	0.495	$	0.33	$	0.33
Class B Common Stock	$	0.450	$	0.450	$	0.30	$	0.30

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

~~NINE~~SIX MONTHS ENDED ~~JUNE~~MARCH 25, ~~2016~~2017 AND ~~JUNE 27, 2015~~MARCH 26, 2016



							Paid-in												Paid-in
	Class A			Class B			Capital in						Class A			Class B			Capital in
	Common Stock			Common Stock			Excess of		Retained				Common Stock			Common Stock			Excess of		Retained
	Shares	Amount		Shares	Amount		Par Value		Earnings		Total		Shares	Amount		Shares	Amount		Par Value		Earnings		Total

Balance, September 27, 2014	13,540,333	$	677,017	6,719,443	$	335,972	$	12,311,249	$	369,277,929	$	382,602,167
Net income	—		—	—		—		—		43,117,234		43,117,234
Cash dividends	—		—	—		—		—		(9,730,709)		(9,730,709)
Common stock conversions	273,118		13,656	(273,118)		(13,656)		—		—		—
Balance, June 27, 2015	13,813,451	$	690,673	6,446,325	$	322,316	$	12,311,249	$	402,664,454	$	415,988,692
Balance, September 26, 2015	13,924,651	$	696,233	6,335,125	$	316,756	$	12,311,249	$	415,654,162	$	428,978,400	13,924,651	$	696,233	6,335,125	$	316,756	$	12,311,249	$	415,654,162	$	428,978,400
Net income	—		—	—		—		—		40,006,290		40,006,290	—		—	—		—		—		27,337,834		27,337,834
Cash dividends	—		—	—		—		—		(9,744,056)		(9,744,056)	—		—	—		—		—		(6,495,941)		(6,495,941)
Common stock conversions	24,250		1,212	(24,250)		(1,212)		—		—		—	18,175		909	(18,175)		(909)		—		—		—
Balance, June 25, 2016	13,948,901	$	697,445	6,310,875	$	315,546	$	12,311,249	$	445,916,396	$	459,240,634
Balance, March 26, 2016													13,942,826	$	697,142	6,316,950	$	315,847	$	12,311,249	$	436,496,055	$	449,820,293
Balance, September 24, 2016													13,966,476	$	698,324	6,293,300	$	314,665	$	12,311,249	$	456,851,372	$	470,175,610
Net income													—		—	—		—		—		22,975,334		22,975,334
Cash dividends													—		—	—		—		—		(6,497,080)		(6,497,080)
Common stock conversions													104,775		5,239	(104,775)		(5,239)		—		—		—
Balance, March 25, 2017													14,071,251	$	703,563	6,188,525	$	309,426	$	12,311,249	$	473,329,626	$	486,653,864



	Nine Months Ended				Six Months Ended
	June 25,		June 27,		March 25,		March 26,
	2016		2015		2017		2016
Cash Flows from Operating Activities:
Net income	$	40,006,290	$	43,117,234	$	22,975,334	$	27,337,834
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		79,343,688		76,745,947		54,913,272		52,391,891
Loss (gain) from sale or disposal of assets		934,039		(320,340)
Gain from sale or disposal of assets						(1,367,978)		(621,141)
Receipt of advance payments on purchases contracts		3,195,887		3,560,751		1,170,000		2,500,000
Recognition of advance payments on purchases contracts		(2,454,998)		(3,222,415)		(1,265,876)		(1,634,696)
Deferred income taxes		7,322,000		3,178,000		(36,000)		3,648,000
Changes in operating assets and liabilities:
Receivables		(6,224,510)		(6,253,362)		(1,808,619)		(4,204,142)
Inventory		(3,201,948)		(5,397,552)		(4,186,629)		(2,236,116)
Other assets		1,988,751		(3,183,166)		(6,802,871)		2,090,262
Accounts payable and accrued expenses		(17,322,748)		(7,073,839)		1,864,809		(21,644,196)
Net Cash Provided by Operating Activities		103,586,451		101,151,258		65,455,442		57,627,696
Cash Flows from Investing Activities:
Proceeds from sales of property and equipment		686,480		1,224,645		1,481,305		643,492
Capital expenditures		(107,823,914)		(73,524,173)		(59,380,630)		(71,224,192)
Net Cash Used by Investing Activities		(107,137,434)		(72,299,528)		(57,899,325)		(70,580,700)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings		577,982,521		579,129,600		251,695,910		399,128,977
Payments on short-term borrowings		(556,186,709)		(587,750,633)		(244,497,799)		(369,559,814)
Principal payments on long-term borrowings		(10,570,808)		(10,470,370)		(7,832,397)		(8,558,415)
Dividends paid		(9,744,056)		(9,730,709)		(6,497,080)		(6,495,941)
Net Cash Provided (Used) by Financing Activities		1,480,948		(28,822,112)
Net (Decrease) Increase in Cash and Cash Equivalents		(2,070,035)		29,618
Net Cash (Used) Provided by Financing Activities						(7,131,366)		14,514,807
Net Increase in Cash and Cash Equivalents						424,751		1,561,803
Cash and cash equivalents at beginning of period		7,505,040		8,613,628		5,679,509		7,505,040
Cash and Cash Equivalents at End of Period	$	5,435,005	$	8,643,246	$	6,104,260	$	9,066,843

~~Nine~~Six Months Ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015~~March 26, 2016

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of Ingles Markets, Incorporated and Subsidiaries (the “Company”) as of ~~June~~March 25, ~~2016,~~2017, the results of operations for the three-month and ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, and the changes in stockholders’ equity and cash flows for the ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015.~~March 26, 2016. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September ~~26, 2015~~24, 2016 filed by the Company under the Securities Exchange Act of 1934 on December ~~10, 2015.~~16, 2016.

The results of operations for the three-month and ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 are not necessarily indicative of the results to be expected for the full fiscal year.

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 changes the presentation of debt issuance costs in financial statements. Upon adoption of ASU 2015-03, debt issuance costs will be reported in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The Company adopted ASU 2015-03 retrospectively during the quarter ended December 26, 2015. As a result, $8.3 million and $9.3 million of debt issuance costs were recorded as a reduction of total debt at June 25,February 2016, ~~and September 26, 2015, respectively.~~

~~In November 2015,~~ the FASB issued Accounting Standards Update ASU ~~2015-17 “Balance Sheet Classification of Deferred Taxes”~~2016-02 “Leases” (ASU ~~2015-17)~~2016-02). ASU ~~2015-17~~2016-02 requires ~~entities~~lessees to ~~present deferred tax~~recognize lease assets and ~~deferred tax~~lease liabilities on the balance sheet for those leases previously classified as ~~noncurrent in a classified balance sheet.~~operating leases. This ASU ~~2015-07 simplifies current guidance, which requires entities to separately present deferred tax assets~~is effective for fiscal years beginning after December 15, 2018, and ~~deferred tax liabilities as current and noncurrent in a classified balance sheet.~~interim periods within those fiscal years, with early adoption permitted. The Company ~~adopted~~is currently evaluating the impact of adopting this ASU ~~2015-17 retrospectively during~~on its consolidated financial statements.

In May 2014, the ~~quarter ended December 26, 2015. As~~FASB issued Accounting Standards Update ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 is a ~~result, $7.3 million~~comprehensive new revenue recognition model that requires a company to recognize to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be revenue entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14 which deferred ~~tax assets were recorded as a reduction~~the effective date of the ~~caption “Deferred Income Taxes” in~~ASU to fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the ~~Condensed Consolidated Balance Sheets at June 25, 2016 and September 26, 2015.~~impact of adopting this ASU on its consolidated financial statements.

Receivables are presented net of an allowance for doubtful accounts of ~~$540,000~~$358,000 at ~~June~~March 25, ~~2016~~2017 and ~~$400,000 at~~ September ~~26, 2015.~~24, 2016.

The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits.

Income tax expense as a percentage of pre-tax income was 37.4% for the nine-month period ended June 25, 2016 compared to 38.2% for the nine-month period ended June 27, 2015. The lower effective tax rate for the fiscal 2016 nine-month period is attributable to certain non-recurring discrete items that occurred during the fiscal 2015 nine-month period.

~~The Company had approximately $4.4 million of refundable income taxes included in the caption “Other current assets” in the Condensed Consolidated Balance Sheets at June 25, 2016.~~

The Company has unrecognized tax benefits and could incur interest and penalties related to uncertain tax positions. These amounts are insignificant and are not expected to significantly increase or decrease within the next twelve months.

On September 13, 2013, the IRS released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code regarding the deduction and capitalization of expenditures related to tangible property as well as dispositions of tangible property. These regulations were effective for the Company’s fiscal year ending September 26, 2015 and did not have a material impact on the Company’s consolidated results of operations, cash flows or financial position for the three and nine month periods ended June 25, 2016 and June 27, 2015.

Accrued expenses and current portion of other long-term liabilities consist of the following:

Self-insurance liabilities are established for general liability claims, workers’ compensation and employee group medical and dental benefits based on claims filed and estimates of claims incurred but not reported. The Company is insured for covered costs in excess

of $750,000 per occurrence for workers’ compensation, $500,000 for general liability and ~~$325,000~~$450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance ~~liabilities~~reserves totaled ~~$35.7 million and $36.3~~$35.9 million at ~~June~~March 25, ~~2016~~2017 and September ~~26, 2015, respectively.~~24, 2016. Of this amount, ~~$13.9~~$13.5 million is accounted for as a current liability and $22.4 million as a long-term liability, which is inclusive of $5.0 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at March 25, 2017. At September 24, 2016, $14.1 million is accounted for as a current liability and $21.8 million as a long-term liability, which is inclusive of ~~$4.2~~$4.8 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at June 25, 2016. At September 26, 2015, $14.7 million is accounted for as a current liability and $21.6 million as a long-term liability, which is inclusive of $4.9 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at September 26, 2015.

receivable. Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled ~~$7.7~~$7.1 million and ~~$9.6~~$10.0 million for the three-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, respectively. For the ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, employee insurance expense, net of employee contributions, totaled ~~$26.8~~$16.4 million and ~~$26.0~~$19.2 million, respectively.

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”) in a private placement. The Notes bear an interest rate of ~~5.75%~~5.750% per annum and were issued at par.

The Company filed a registration statement with the Securities and Exchange Commission toand completed the exchange ~~the~~of private placement notes with registered notes. ~~The exchange has been completed.~~

The Company may redeem all or a portion of the Notes at any time on or after June 15, 2018 at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:

~~In connection with the offering of the Notes, the~~The Company ~~extended the maturity date of its~~has a $175.0 million line of credit (the “Line”) ~~from December 2015 to~~that matures in June ~~2018 and modified certain interest rate options and covenants. Outstanding borrowings under the Line totaled $22.3 million at June 25, 2016.~~

2018. The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate (“LIBOR”). The Line allows the Company to issue up to $30.0 million in unused letters of credit, of which ~~$9.7~~$9.0 million of unused letters of credit were issued at ~~June~~March 25, ~~2016.~~2017. The Company is not required to maintain compensating balances in connection with the Line. At March 25, 2017, the Company had $7.2 million of borrowings outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for construction of new warehouse and distribution space in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.

The Bonds were issued by the Buncombe County Industrial Facilities and Pollution Control Financing Authority and were purchased by certain financial institutions. Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between the financial institutions and the Company, the financial institutions would hold the Bonds until ~~January 2, 2018,~~June 30, 2021, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.

~~In connection with the offering of the Notes, the Company extended the maturity date of the Covenant Agreement from January 2018 to June 2021 and modified certain interest rate options and covenants.~~ The Company may redeem the Bonds without penalty or premium at any time prior to June 2021.

Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation. The interest rate on the Bonds is equal to one month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.

The Company’s obligation to repay the Bonds is collateralized by the Project. Additional collateral was required in order to meet certain loan to value criteria in the Covenant Agreement. The Covenant Agreement incorporates substantially all financial covenants included in the Line.

The Notes, the Bonds and the Line contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants related to its borrowings at ~~June~~March 25, ~~2016.~~2017.

The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s Line, ~~Bond~~Bonds and Notes indenture in the event of default under any one instrument.

The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October ~~22, 2015~~14, 2016 to stockholders of record on October ~~8, 2015.~~6, 2016.

The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January ~~21, 2016~~12, 2017 to stockholders of record on January ~~7, 2016.~~

~~The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on April 14, 2016 to stockholders of record on April 7, 2016.~~6, 2017.

For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements of the Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934 on December ~~10, 2015.~~16, 2016.

The Company has two classes of common stock: Class A which is publicly traded, and Class B, which has no public market. The Class B Common Stock has restrictions on transfer; however, each share is convertible into one share of Class A Common Stock at any time. Each share of Class A Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share. Each share of Class A Common Stock is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock.

The Company calculates earnings per share using the two-class method in accordance with FASB Accounting Standards Codification ("(“FASB ASC”) Topic 260.

The two-class method of computing basic earnings per share for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Diluted earnings per share is calculated assuming conversion of all shares of Class B Common Stock to shares of Class A Common Stock on a share-for-share basis. The tables below reconcile the numerators and denominators of basic and diluted earnings per share for current and prior periods.



	Three Months Ended				Six Months Ended
	March 25, 2017				March 25, 2017
	Class A		Class B		Class A		Class B
Numerator: Allocated net income
Net income allocated, basic	$	6,513,698	$	2,637,749	$	16,328,364	$	6,646,970
Conversion of Class B to Class A shares		2,637,749		—		6,646,970		—
Net income allocated, diluted	$	9,151,447	$	2,637,749	$	22,975,334	$	6,646,970

Denominator: Weighted average shares outstanding
Weighted average shares outstanding, basic		14,038,094		6,221,682		14,002,300		6,257,476
Conversion of Class B to Class A shares		6,221,682		—		6,257,476		—
Weighted average shares outstanding, diluted		20,259,776		6,221,682		20,259,776		6,257,476

Earnings per share
Basic	$	0.47	$	0.42	$	1.17	$	1.06
Diluted	$	0.45	$	0.42	$	1.13	$	1.06

Three Months Ended

Nine Months Ended

June 25, 2016

June 25, 2016

Class A

Class B

Class A

Class B
Numerator: Allocated net income



Net income allocated, basic

$
8,973,689

$
3,694,766

$
28,317,738

$
11,688,552
Conversion of Class B to Class A shares


3,694,766

—

11,688,552

—
Net income allocated, diluted

$
12,668,455

$
3,694,766

$
40,006,290

$
11,688,552



Denominator: Weighted average shares outstanding



Weighted average shares outstanding, basic


13,944,818

6,314,958

13,932,356

6,327,420
Conversion of Class B to Class A shares


6,314,958

—

6,327,420

—
Weighted average shares outstanding, diluted


20,259,776

6,314,958

20,259,776

6,327,420

Earnings per share

Basic

$
0.64

$
0.59

$
2.03

$
1.85
Diluted

$
0.63

$
0.59

$
1.98

$
1.85

The per share amounts for the ~~third~~second quarter of fiscal ~~2015~~2016 and the ~~nine~~six months ended ~~June 27, 2015~~March 26, 2016 are based on the following amounts:



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 27, 2015				June 27, 2015				March 26, 2016				March 26, 2016
	Class A		Class B		Class A		Class B		Class A		Class B		Class A		Class B
Numerator: Allocated net income
Net income allocated, basic	$	9,646,468	$	4,130,217	$	29,934,820	$	13,182,414	$	10,169,757	$	4,188,654	$	19,352,122	$	7,985,712
Conversion of Class B to Class A shares		4,130,217		—		13,182,414		—		4,188,654		—		7,985,712		—
Net income allocated, diluted	$	13,776,685	$	4,130,217	$	43,117,234	$	13,182,414	$	14,358,411	$	4,188,654	$	27,337,834	$	7,985,712

Denominator: Weighted average shares outstanding
Weighted average shares outstanding, basic		13,777,019		6,482,757		13,657,699		6,602,077		13,942,826		6,316,950		13,934,874		6,324,902
Conversion of Class B to Class A shares		6,482,757		—		6,602,077		—		6,316,950		—		6,324,902		—
Weighted average shares outstanding, diluted		20,259,776		6,482,757		20,259,776		6,602,077		20,259,776		6,316,950		20,259,776		6,324,902

Earnings per share
Basic	$	0.70	$	0.63	$	2.19	$	1.99	$	0.73	$	0.66	$	1.39	$	1.26
Diluted	$	0.68	$	0.63	$	2.13	$	1.99	$	0.71	$	0.66	$	1.35	$	1.26

The Company operates one primary business segment, retail grocery sales. The “Other” activities include fluid dairy and shopping center rentals. Information about the Company’s operations by lines of business (amounts in thousands) is as follows:



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 25,		June 27,		June 25,		June 27,		March 25,		March 26,		March 25,		March 26,
	2016		2015		2016		2015		2017		2016		2017		2016
Revenues from unaffiliated customers:
Retail	$	922,751	$	911,698	$	2,729,293	$	2,717,538
Grocery									$	342,188	$	351,123	$	703,089	$	709,585
Non-foods										201,258		198,158		413,568		401,026
Perishables										248,673		248,343		504,522		495,227
Gasoline										118,083		92,187		236,606		200,704
Total Retail									$	910,202	$	889,811	$	1,857,785	$	1,806,542
Other		34,427		34,276		103,311		108,268		35,950		34,501		71,125		68,884
Total revenues from unaffiliated customers	$	957,178	$	945,974	$	2,832,604	$	2,825,806	$	946,152	$	924,312	$	1,928,910	$	1,875,426

Income from operations:
Retail	$	28,031	$	27,686	$	84,669	$	92,261	$	20,606	$	28,869	$	49,597	$	56,638
Other		3,834		3,429		11,954		10,020		4,446		4,259		7,621		8,120
Total income from operations	$	31,865	$	31,115	$	96,623	$	102,281	$	25,052	$	33,128	$	57,218	$	64,758

Three Months Ended

Nine Months Ended


June 25,

June 27,

June 25,

June 27,

2016

2015

2016

2015
Grocery

$
337,030

$
335,974

$
1,046,616

$
1,042,559
Non-foods


207,575


195,484


608,601


571,059
Perishables

257,799

250,895

753,027

731,507
Gasoline


120,347


129,345


321,049


372,413
Total retail

$
922,751

$
911,698

$
2,729,293

$
2,717,538



	March 25,		September 24,
	2017		2016
Assets:
Retail	$	1,570,727	$	1,555,319
Other		134,135		133,574
Elimination of intercompany receivable		(1,669)		(2,415)
Total assets	$	1,703,193	$	1,686,478

For the three-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, respectively, the fluid dairy ~~operation~~ had ~~$10.1~~$11.5 million and ~~$11.1~~$11.0 million in sales to the retail grocery ~~sales operation.~~segment. The fluid dairy ~~operation~~ had ~~$32.4~~$23.3 million and ~~$38.1~~$22.3 million in sales to the retail grocery ~~sales operation~~segment for the ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, respectively. These sales have been eliminated in ~~consolidation and are excluded from the amounts in the table above.~~consolidation.

The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

The fair value of the Company’s debt is estimated using valuation techniques under the accounting guidance related to fair value measurements based on observable and unobservable inputs. Observable inputs reflect readily available data from independent sources, while unobservable inputs reflect the Company’s market assumptions. These inputs are classified into the following hierarchy:

The carrying amount and fair value of the Company’s debt at ~~June~~March 25, ~~2016~~2017 is as follows (in thousands):

The fair values for Level 2 measurements were determined primarily using market yields and taking into consideration the underlying terms of the debt.

The purpose of the Executive Nonqualified Excess Plan is to provide retirement benefits similar to the Company’s Investment/Profit Sharing Plan to certain of the Company’s management employees who are otherwise subject to limited participation in the 401(k) feature of the Company’s Investment/Profit Sharing Plan. Participant retirement account balances are liabilities of the Company. Assets of the plan are assets of the Company and are held in trust for employees and distributed upon retirement, death, disability, in-service distributions, or other termination of employment. In accordance with the trust, the Company may not use these assets for general corporate purposes. During the nine months ended June 25, 2016 and June 27, 2015, the Company invested a portion of the proceeds of liquidated life insurance policy assets in marketable securities. These marketable securities have been liquidated and invested in other life insurance policies. Life insurance policies and marketable securities held in the trust are included in the caption “Other assets” in the Condensed Consolidated Balance Sheets.

We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the day the financial statements were issued.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Ingles, a leading supermarket chain in the Southeast, operates 201 supermarkets in Georgia (71), North Carolina ~~(70)~~(71), South Carolina (36), Tennessee (21), Virginia ~~(2)~~(1) and Alabama (1). The Company locates its supermarkets primarily in suburban areas, small towns and rural communities. Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products. Non-food products include fuel centers, pharmacies, health and beauty care products and general merchandise. In addition, the Company focuses on selling high-growth, high-margin products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections. As of ~~June~~March 25, ~~2016,~~2017, the Company operated 99101 in-store pharmacies and 9396 fuel centers.

Ingles also operates a fluid dairy and earns shopping center rentals. The fluid dairy processing operation sells approximately 25% of its products to the retail grocery ~~operation~~segment and approximately 75% of its products to third parties. Real estate ownership is an important component of the Company’s operations, providing both operational and economic benefits.

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.

The Company is self-insured for workers’ compensation and group medical and dental benefits. Risks and uncertainties are associated with self-insurance; however, the Company has limited its exposure by maintaining excess liability coverage of $750,000 per occurrence for workers’ compensation, $500,000 for general liability, and ~~$325,000~~$450,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported. The estimates are based on data provided by the respective claims administrators. These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, liability coverage is maintained. At ~~June~~March 25, ~~2016~~2017, the Company’s self-insurance ~~liabilities~~reserves totaled ~~$35.7~~$35.9 million. Of this amount, ~~$13.9~~$13.5 million is accounted for as a current liability and ~~$21.8~~$22.4 million as a long-term liability, which is inclusive of ~~$4.2~~$5.0 million of expected self-insurance recoveries from excess cost insurance or other sources that are ~~recorded~~recoded as a receivable at ~~June~~March 25, ~~2016.~~2017.

The Company accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360. For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted

cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation. The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred. There were no asset impairments during the ~~nine-month~~six-month period ended ~~June~~March 25, ~~2016.~~2017.

The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores. These incentives and allowances are primarily comprised of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts. The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the vendor’s products. These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis. Whenever possible, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold. Due to system constraints and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic

methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold. Vendor allowances applied as a reduction of merchandise costs totaled ~~$29.5~~$29.0 million and ~~$28.7~~$28.9 million for the fiscal quarters ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, respectively. For the ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, vendor allowances applied as a reduction of merchandise costs totaled ~~$88.0~~$59.7 million and ~~$88.3~~$58.5 million, respectively. Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred. Vendor advertising allowances recorded as a reduction of advertising expense totaled ~~$3.4~~$3.2 million and $3.1 million for ~~each of~~ the fiscal quarters ended ~~June~~March 25, 2017 and March 26, 2016, ~~and June 27, 2015.~~respectively. For the ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, vendor advertising allowances recorded as a reduction of advertising expense totaled ~~$10.2~~$7.1 million and ~~$10.9~~$6.8 million, respectively.

If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising, as well as the volume and frequency of the Company’s product advertising, which could increase or decrease the Company’s expenditures.

Similarly, the Company is not able to assess the impact of vendor advertising allowances on creating additional ~~revenue,~~revenue; as such allowances do not directly generate revenue for the Company’s stores.

Ingles operates on a 5252- or 53-week fiscal year ending on the last Saturday in September. There are 13 and 3926 weeks of operations included in the ~~unaudited~~Unaudited Condensed Consolidated Statements of Income for the ~~three~~three- and ~~nine-month~~six-month periods ended ~~June~~March 25, 2017 and March 26, 2016, ~~and June 27, 2015.~~respectively. Comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters. Sales from replacement stores, major ~~remodels, minor~~ remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof. A replacement store is a new store that is opened to replace an existing nearby store that is closed. A major remodel entails substantial remodeling of an existing store and ~~may include~~includes additional retail square footage. For the ~~three~~three- and ~~nine-month~~six-month periods ended ~~June~~March 25, ~~2016~~2017 and ~~June 27, 2015,~~March 26, 2016, comparable store sales include 199 and 200 stores, respectively.

The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales. For information regarding the various segments of the business, see Note I “Segment Information” to the Unaudited Condensed Consolidated Financial Statements.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 25,		June 27,		June 25,		June 27,		March 25,		March 26,		March 25,		March 26,
	2016		2015		2016		2015		2017		2016		2017		2016
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	24.3	%	23.5	%	24.3	%	23.5	%	24.1	%	24.7	%	24.1	%	24.2	%
Operating and administrative expenses	20.8	%	20.2	%	20.8	%	19.9	%	21.5	%	21.2	%	21.2	%	20.8	%
Loss from sale or disposal of assets	(0.2)	%	—	%	(0.1)	%	—	%
Income from operations	3.3	%	3.3	%	3.4	%	3.6	%	2.6	%	3.6	%	3.0	%	3.5	%
Other income, net	0.1	%	0.1	%	—	%	—	%	0.1	%	0.1	%	0.1	%	0.1	%
Interest expense	1.2	%	1.1	%	1.2	%	1.2	%	1.2	%	1.2	%	1.2	%	1.2	%
Income tax expense	0.9	%	0.8	%	0.8	%	0.9	%	0.5	%	0.9	%	0.7	%	0.8	%
Net income	1.3	%	1.5	%	1.4	%	1.5	%	1.0	%	1.6	%	1.2	%	1.5	%

Three Months Ended ~~June~~March 25, ~~2016~~2017 Compared to the Three Months Ended ~~June 27, 2015~~ March 26, 2016

Net income for the ~~third~~second quarter of fiscal ~~2016~~2017 totaled ~~$12.7~~$9.2 million, compared with ~~$13.8~~net income of $14.4 million earned for the ~~third~~second quarter of fiscal ~~2015. Comparing the two third quarters, fiscal 2016 had higher~~2016. Retail dollar sales and gross profit ~~that were offset by higher~~(both excluding gasoline) decreased slightly, partly due to the timing of the Easter holiday. The 2016 Easter holiday occurred in March so last year’s second quarter benefited from the extra sales and gross profit. The 2017 Easter holiday occurred in April, so this year’s third quarter will benefit. Operating expenses ~~taxes and the demolition of properties that will be redeveloped into larger stores.~~also increased, primarily in personnel costs.

Net Sales. Net sales increased by ~~$11.2~~$21.9 million, or ~~1.2%~~2.4% to ~~$957.2~~$946.2 million for the three months ended ~~June~~March 25, ~~2016~~2017 from ~~$946.0~~$924.3 million for the three months ended ~~June 27, 2015. Lower~~March 26, 2016. Higher gasoline sales ~~were~~(in both dollars and gallons) helped offset ~~by higher~~the Easter effect on sales ~~in other products.~~described above. Comparing the ~~third~~second quarter of fiscal 2017 with the second quarter of fiscal 2016, ~~with the third quarter of fiscal 2015,~~ gasoline sales dollars ~~decreased 6.8%~~increased 28.3% due to a ~~14.4% decrease~~25.5% increase in the average sales price per gallon. Gallons sold increased ~~8.9%~~2.3% over the same comparable periods. ~~Easter occurred in the second quarter of the current fiscal year, but did not occur until the third quarter of the prior fiscal year.~~ Excluding gasoline sales and the effect of extra Easter sales in ~~last year’s third quarter,~~fiscal 2016, total grocery comparable store sales ~~increased 2.6%~~decreased

0.3% over the comparative fiscal ~~third~~second quarters. Comparing the ~~third~~second quarters of fiscal year ~~2016~~2017 and ~~2015~~2016 (and excluding gasoline), the number of customer transactions increased ~~1.9%~~0.2% and the average transaction size ~~increased 0.6%~~decreased 0.8%.

Ingles operated 201 and 202 stores at ~~June~~March 25, 2017 and March 26, 2016, ~~and at June 27, 2015.~~respectively. Retail square ~~footage was approximately~~feet totaled 11.2 million square feet at March 25, 2017 and 11.1 million square feet at ~~June 25, 2016~~March 26, 2016. During the last twelve months the Company opened one store and ~~11.0 million at June 27, 2015.~~ closed two stores, one of which is being rebuilt and will open later this fiscal year.

The non-foods ~~include~~category includes alcoholic beverages, tobacco, pharmacy, health and video.

Changes in ~~grocery segment~~retail sales for the quarter ended ~~June~~March 25, ~~2016~~2017 are summarized as follows ~~(dollars in~~(in thousands):

Gross Profit. Gross profit for the three-month period ended ~~June~~March 25, ~~2016 increased $10.7~~2017 decreased $0.6 million, or ~~4.8%~~0.3%, to ~~$232.9~~$228.1 million, or ~~24.3%~~24.1% of sales, compared with ~~$222.2~~gross profit $228.7 million, or ~~23.5%~~24.7% of sales, for the three-month period ended ~~June 27, 2015.~~ March 26, 2016.

Excluding gasoline sales, retail grocery segment gross profit as a percentage of sales increased 39seven basis points incomparing the ~~third~~second quarter of fiscal ~~2016~~2017 compared with the same fiscal ~~2015~~2016 period. Gasoline gross profit dollars were ~~also~~ higher for the quarter ended ~~June~~March 25, ~~2016~~2017 compared with the quarter ended ~~June 27, 2015.~~March 26, 2016.

In addition to the direct product cost, the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the Company’s distribution network. The ~~milk processing operation~~fluid dairy is a manufacturing process; therefore, the costs mentioned above as well as purchasing, production costs, and internal transfer costs incurred by the ~~milk~~fluid dairy processing operation are included in the cost of goods sold line item, while these items are included in operating and administrative expenses in the grocery segment.

Operating and Administrative Expenses. Operating and administrative expenses increased ~~$8.7~~$6.9 million, or ~~4.6%~~3.5%, to ~~$199.4~~$203.0 million for the three months ended ~~June~~March 25, ~~2016,~~2017, from ~~$190.7~~$196.1 million for the three months ended ~~June 27, 2015.~~March 26, 2016. As a percentage of sales, operating and administrative expenses were ~~20.8%~~21.5% for the three months ended ~~June~~March 25, ~~2016~~2017 compared with ~~20.2%~~21.2% for the three months ended ~~June 27, 2015.~~March 26, 2016. Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were ~~23.6% and 23.2%~~24.3% of sales for the ~~third~~second fiscal 2017 quarter ofand 23.4% for the second fiscal 2016 ~~and 2015, respectively.~~quarter.

The major increases ~~(decreases)~~ in operating and administrative expenses iswere as follows:

Salaries and wages expenses increased ~~in dollars~~ due to the additional labor hours required in part to accommodate in-store merchandising changes. Competition for ~~the~~labor has also increased ~~sales volume.~~

~~Depreciation and amortization expense increased as a result of capital expenditures to improve~~in the Company’s ~~store base and distribution operations.~~

~~Bank charges increased due to higher volume and per transaction costs of credit and debit card transactions.~~market area.

Insurance expense decreased due to lower claims and reserves under the Company’s self-insurance programs.

~~Loss from Sale or Disposal~~Depreciation and amortization increases as a result of ~~Assets.~~ ~~Loss from Sale or Disposal of Assets was $1.6 million for~~ the ~~June 2016 quarter compared with a loss of $0.3 million for the June 2015 quarter. During the June 2016 quarter, the Company demolished certain buildings for redevelopment into larger~~Company’s capital expenditure programs, including new stores and ~~improved store or tenant space.~~

Taxes and licenses increased due to expansion of the Company’s property, rolling stock and product offerings.

Advertising and promotion decreased from savings primarily in its print related advertising.

Interest Expense. Interest expense increased ~~$0.6~~$0.5 million for the three-month period ended ~~June~~March 25, ~~2016~~2017 to ~~$11.2~~$11.7 million from ~~$10.6~~$11.2 million for the three-month period ended ~~June 27, 2015.~~March 26, 2016. The increase is attributable to higher borrowing on the Company’s line of credit during the quarter to accommodate increased inventory levels, tax payments and capital expenditures. Total debt at ~~June 2016~~March 2017 was ~~$898.2~~$876.5 million compared ~~to $918.2~~with $907.7 million at ~~June 2015.~~ March 2016.

Income Taxes. Income tax expense as a percentage of pre-tax income was ~~40.2%~~35.1% for the ~~June 2016~~ quarter ,ended March 25, 2017 compared with ~~34.6%~~36.0% for the ~~June 2015 quarter. During the third~~ quarter of each fiscal year, the Company reconciles estimated prior year tax expense to actual tax returns filed during the quarter. This process increased tax expense during the current fiscal quarter and decreased it in last year’s third fiscal quarter.ended March 26, 2016.

Net Income. Net income totaled ~~$12.7 million and $13.8~~$9.2 million for the three-month ~~periods~~period ended ~~June~~March 25, ~~2016~~2017 compared with $14.4 million for the three-month period ended March 26, 2016. Net income, as a percentage of sales, was 1.0% for the quarter ended March 25, 2017 and ~~June 27, 2015, respectively.~~1.6% for the quarter ended March 26, 2016. Basic and diluted earnings per share for Class A Common Stock were ~~$0.64~~$0.47 and ~~$0.63, respectfully~~$0.45, respectively, for the ~~June 2016 quarter.~~quarter ended March 25, 2017 compared with $0.73 and $0.71, respectively, for the quarter ended March 26, 2016. Basic and diluted earnings per share for Class B Common Stock were ~~each $0.59~~$0.42 for the ~~June 2016 quarter. Basic~~quarter ended March 25, 2017 and ~~diluted earnings per share for Class A Common Stock were $0.70 and $0.68, respectfully~~$0.66 for the ~~June 2015 quarter. Basic and diluted earnings per share for Class B Common Stock were each $0.63 for the June 2015 quarter.~~ quarter ended March 26, 2016.

~~Nine~~Six Months Ended ~~June~~March 25, ~~2016~~2017 Compared to the ~~Nine~~Six Months Ended ~~June 27, 2015~~March 26, 2016

Net income for the first ~~nine months~~half of fiscal ~~2016~~2017 totaled ~~$40.0~~$23.0 million compared with net income of ~~$43.1~~$27.3 million earned for the ~~nine-month~~comparable fiscal ~~2015~~2016 period. ~~Non-gas~~Total sales and gross profit increased comparing the six month fiscal 2017 and ~~gross margin all increased,~~fiscal 2016 periods, but operating expenses (notably personnel costs) increased to a ~~higher degree.~~greater extent.

Net ~~Sales~~Sales. . Net sales totaled ~~$2.83~~$1.93 billion for ~~each~~the six months period ended March 25, 2017, 2.9% higher than the net sales of $1.88 billion for the ~~nine~~six month ~~periods~~period ended ~~June 25, 2016~~March 26, 2016. Retail, gasoline and ~~June 27, 2015. Decreases in retail gasoline prices and~~fluid dairy sales ~~dollars were offset by increases in other areas. Excluding gasoline, total sales increased 2.3% over the comparative nine month 2016 and 2015 periods.~~ all increased.

Grocery segment comparable store sales, excluding the effect of gasoline and extra Easter sales, increased ~~2.1%~~0.8%. The number of customer transactions (excluding gasoline) increased ~~1.4%~~1.2%, ~~while~~and the average transaction size (excluding gasoline) ~~increased~~decreased by ~~1.2%~~0.2%.

The non-foods ~~include~~category includes alcoholic beverages, tobacco, pharmacy, health and video.

Changes in retail grocery ~~segment~~ sales for the ~~nine~~six months ended ~~June~~March 25, ~~2016 can be~~2017 are summarized as follows ~~(dollars in~~(in thousands):

Sales growth for the remainder of fiscal ~~2016~~2017 will depend upon the pace of economic improvement, inflation and market prices for gasoline and raw milk. In addition to ~~recently opened~~ new ~~and remodeled~~ stores opening in fiscal 2017, the Company expects that the maturation of previous new and expanded stores will contribute to sales growth. The Company continues to remodel existing stores in order to increase sales and gross profit at a lower cost compared with the construction cost of adding additional square footage.

Gross Profit. Gross profit for the ~~nine~~six months ended ~~June~~March 25, ~~2016~~2017 increased ~~$22.0~~$10.8 million, or ~~3.3%~~2.4%, to ~~$687.2~~$465.2 million compared with ~~$665.2~~$454.4 million, for the ~~nine~~six months ended ~~June 27, 2015.~~March 26, 2016. As a ~~percentage~~percent of sales, gross profit ~~totaled 24.3%~~was 24.1% for the ~~nine~~six months ended ~~June~~March 25, ~~2016 and 23.5%~~2017 compared with 24.2% for the ~~nine~~six months ended ~~June 27, 2015.~~March 26, 2016.

Excluding gasoline sales, retail grocery segment gross profit as a percentage of sales increased 1824 basis points incomparing the first ~~three quarters~~half of fiscal ~~2016~~2017 compared with the same fiscal ~~2015~~2016 period. ~~Gasoline gross profit dollars were lower for the nine months ended June 25, 2016 compared with the nine months ended June 27, 2015.~~

Operating and Administrative Expenses. Operating and administrative expenses increased ~~$26.4~~$19.1 million ~~or 4.7%,~~ to ~~$589.7~~$409.3 million for the ~~nine~~six months ended ~~June~~March 25, ~~2016,~~2017, from ~~$563.3~~$390.2 million for the ~~nine~~six months ended ~~June 27, 2015.~~March 26, 2016. As a percentage of sales, operating and administrative expenses were 21.2% for the six-month period ended March 25, 2017 compared with 20.8% for the ~~June 2016 nine-month~~six-month period ~~compared with 19.9% for the same period last year.~~ended March 26, 2016. Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were ~~23.3% and 22.8%~~24.0% of sales for the ~~nine-month~~first six-month period of fiscal ~~2016 and 2015 periods, respectively.~~2017 compared with 23.1% for the first six-month period of fiscal 2016.

Salaries and wages increased ~~in dollars~~ due to the additional labor hours required in part to accommodate in-store merchandising changes. Competition for labor has also increased in the ~~increased sales volume.~~Company’s market area.

Repairs and maintenance increased due to more sophisticated equipment and updated lighting in our stores, and due also to a higher level of building maintenance.

Depreciation and amortization increased as a result of the Company’s capital expenditure programs, including new stores and remodeling projects.

Advertising and promotion ~~increased~~decreased from ~~expanded print and television investments and~~savings primarily in ~~response to the current competitive environment.~~its print-related advertising.

Bank charges increased due to higher volume and per transaction costs of credit and debit card transactions.

~~Depreciation and amortization expense increased as a result of capital expenditures to improve the Company’s store base and distribution operations.~~

~~Loss or gain from sale or disposal of assets.~~ Loss from Sale or Disposal of Assets was $0.9 million for the June 2016 nine month period compared with a gain of $0.3 million for the June 2015 nine month period. During the June 2016 quarter, the Company demolished certain buildings for redevelopment into larger and improved store or tenant space.

Interest Expense. Interest expense ~~increased $0.2 million to $34.4~~totaled $23.0 million for the ~~nine months~~six-month period ended ~~June~~March 25, ~~2016 from $34.2~~2017 compared with $23.2 million for the ~~nine months~~six-month period ended ~~June 27, 2015.~~March 26, 2016. Total debt decreased $31.2 million between March 2016 and March 2017.

Income Taxes. Income tax expense as a percentage of pre-tax income ~~was 37.4% in~~decreased to 35.5 % for the ~~June 2016 nine-month~~six-month period ended March 25, 2017 compared ~~to 38.2% in~~with 36.0% for the ~~June 2015 nine-month period.~~six-month period ended March 26, 2016.

Net Income. Net income totaled ~~$40.0~~$23.0 million for the ~~nine-month~~six-month period ended ~~June~~March 25, 2017 compared with $27.3 million for the six-month period ended March 26, 2016. Net income, as a percentage of sales, was 1.2% for the six months ended March 25, 2017 compared with 1.5% for the six months ended March 26, 2016. Basic and diluted earnings per share for Class A Common Stock were ~~$2.03~~$1.17 and ~~$1.98,~~$1.13, respectively, for the ~~June 2016 nine-month period.~~six months ended March 25, 2017 compared to $1.39 and $1.35, respectively, for the six months ended March 26, 2016. Basic and diluted earnings per share for Class B Common Stock were each ~~$1.85~~$1.06 for the ~~June 2016 nine-month period. Net income totaled $43.1 million for the nine-month period~~six months ended ~~June 27, 2015. Basic~~March 25, 2017 compared with $1.26 of basic and diluted earnings per share for ~~Class A Common Stock were $2.19 and $2.13, respectively, for~~ the ~~June 2015 nine-month period. Basic and diluted earnings per share for Class B Common Stock were each $1.99 for the June 2015 nine-month period.~~six months ended March 26, 2016.

The Company believes that a key to its ability to continue to develop a loyal customer base is providing conveniently located, clean and modern stores ~~which~~that provide customers with good service and a broad selection of competitively priced products. Therefore, the Company has invested and plans to continue to invest significant amounts of capital toward the modernization of its store base. The Company’s modernization program includes the opening of new stores, the completion of remodels and expansion of selected existing

stores, and the relocation of selected existing stores to larger, more convenient locations. The Company will also add fuel centers, pharmacies and other products complementary to grocery sales where market conditions and real estate considerations warrant.

Capital expenditures totaled ~~$107.8~~$59.4 million for the ~~nine-month~~six-month period ended ~~June~~March 25, ~~2016.~~2017. These capital expenditures focused on construction of stores that opened ~~in 2016~~ or ~~will~~are scheduled to open in fiscal 2017, ~~the addition of fuel centers~~site acquisition, and ~~smaller scale~~smaller-scale remodeling projects in a number of the Company’s stores. Capital expenditures also included the costs of upgrading and replacing store equipment, technology investments, rolling stock, and capital expenditures related to the Company’s milk processing plant.

Ingles’ capital expenditure plans for fiscal ~~2016~~2017 include investments of approximately ~~$120~~$100 to ~~$145~~$140 million. The majority of the Company’s fiscal ~~2016~~2017 capital expenditures will be dedicated to continued improvement of its store base and also include ~~investments~~investment in stores expected to open in fiscal 2017 ~~as well as~~or 2018. Additional capital expenditures will be used for technology improvements, upgrading ~~and replacing~~ existing ~~store equipment and~~stores, warehouse, and transportation equipment ~~and~~as well as improvements to the Company’s milk processing plant.

The Company expects that its net annual capital expenditures will be in the range of approximately $100 to $160 million going forward in order to maintain a modern store base. Planned expenditures for any given future fiscal year will be affected by the

availability of financing, which can affect both the number of projects pursued at any given time and the cost of those projects. The number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores and major ~~remodel/~~remodels/expansions. The Company makes decisions on the allocation of capital expenditure dollars based on many factors including the competitive environment, other Company capital initiatives and its financial condition.

The Company does not generally enter into commitments for capital expenditures other than on a store-by-store basis at the time it begins construction on a new store or begins a major ~~or minor~~ remodeling project. ~~Outstanding construction~~Construction commitments at March 25, 2017 totaled ~~$5.8 million at June 25, 2016.~~$8.9 million.

The Company generated net cash from operations of ~~$103.6~~$65.5 million infor the ~~June 2016 nine-month period~~six months ended March 25, 2017 compared ~~to $101.2~~with $57.6 million for the comparable ~~2015~~2016 period. ~~There were no individually significant changes in components~~Most of ~~cash from operations~~the change is attributable to the timing of working capital expenditures over the comparative ~~nine-month~~six-month periods.

Cash used by investing activities for the ~~nine-month~~six-month period ended ~~June~~March 25, 2017 totaled $57.9 million, compared with $70.6 million for the comparable 2016 period. Capital expenditures are lower in the current fiscal year period primarily due to the timing of expenditures on new buildings and store remodel projects.

Cash used by financing activities during the six-month period ended March 25, 2017 totaled ~~$107.1~~$7.1 million compared with cash ~~used~~provided of ~~$72.3~~$14.5 million for the ~~nine-month period ended June 27, 2015.~~comparable 2016 period. During ~~the fiscal 2016 period, capital expenditures were higher than in the prior fiscal year period.~~

Cash provided by financing activities totaled $1.5 million for the nine months ended June 25, 2016 compared with a $28.8 million use of cash by financing activities for the nine months ended June 27, 2015. The Company has borrowed more on its Line to finance a higher level of capital expenditures in the current fiscal ~~year.~~year, less funds were used for short-term borrowing to support working capital expenditures. Long-term debt repayments were substantially the same over both six month periods.

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”). The Notes bear an interest rate of ~~5.75%~~5.750% per annum and were issued at par.

~~In connection with the offering of the Notes, the~~The Company ~~extended the maturity date of its~~has a $175.0 million ~~Line from December 2015 to~~line of credit (the “Line”) that matures in June ~~2018 and modified certain interest rate options and covenants. At June 25, 2016 the Company had $22.3 million borrowing outstanding under the Line.~~2018.

The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering ~~Rate.~~Rate (“LIBOR”). The Line allows the Company to issue up to $30.0 million in unused letters of credit, of which ~~$9.7~~$9.0 million of unused letters of credit were issued at ~~June~~March 25, ~~2016.~~2017. The Company is not required to maintain compensating balances in connection with ~~this~~the Line. At March 25, 2017, the Company had $7.2 million of borrowings outstanding under the Line.

OnIn December ~~29,~~ 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for ~~the~~ construction of new warehouse and distribution space adjacent to its existing space located in Buncombe County, North ~~Carolina~~Carolina. The final maturity date of the Bonds is January 1, 2036.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until January 2, 2018, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.

The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s Line, Bond and Notes indenture in the event of default under any one instrument.

The Notes, the Bonds and the Line contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. As of ~~June~~March 25, ~~2016,~~2017, the Company was in compliance with these covenants. Under the most restrictive of these covenants, the Company would be able to incur approximately ~~$371~~$360 million of additional borrowings (including borrowings under the Line) as of ~~June~~March 25, ~~2016.~~2017.

The Company’s principal sources of liquidity are expected to be cash flow from operations, borrowings under the Line and long-term financing. The Company believes, based on its current results of operations and financial condition, that its financial resources, including the Line, short- and long-term financing expected to be available to it and internally generated funds, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future, including any debt service requirements of additional borrowings. However, there is no assurance that any such sources of financing will be available to the Company when needed on acceptable terms, or at all.

It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this report based on a number of factors. These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery and changing demographics, as well

as the additional factors discussed below under “Forward Looking Statements.” It is also possible, for such reasons, that the results of operations from the new, expanded, remodeled and/or replacement stores will not meet or exceed the results of operations from existing stores that are described in this report.

There have been no material changes in contractual obligations and commercial commitments subsequent to September ~~26, 2015~~24, 2016 other than as disclosed elsewhere in this Form 10-Q.

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Since December 27, 1993, the Company has paid regular quarterly cash dividends of $0.165 (sixteen and one-half cents) per share on its Class A Common Stock and $0.15 (fifteen cents) per share on its Class B Common Stock for an annual rate of $0.66 and $0.60 per share, respectively.

The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors periodically reconsiders the declaration of dividends. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant. In addition, the Notes, the Bonds, and the Line contain provisions that, based on certain financial parameters, restrict the ability of the Company to pay additional cash dividends in excess of current quarterly per share amounts. Further, the Company is prevented from declaring dividends at any time that it is in default under the indenture governing the Notes.

Sales in the grocery segment of the Company’s business are subject to a slight seasonal variance due to holiday related sales and due to sales in areas where seasonal homes are located. Sales are traditionally higher in the Company’s first fiscal quarter due to the inclusion of sales related to Thanksgiving and Christmas. The Company’s second fiscal quarter traditionally has the lowest sales of the ~~year, unless Easter falls in that quarter.~~year. In the third and fourth quarter, sales are affected by the return of customers to seasonal homes in our market area. The fluid dairy operation of the Company’s business has slight seasonal variation to the extent of its sales into the grocery industry. The Company’s real estate operation is not subject to seasonal variations.

The following table from the United States Bureau of Labor Statistics lists ~~annualized~~ changes in the Consumer Price Index that could have an effect on the Company’s operations. One of the Company’s significant costs is labor, which increases with general inflation. Inflation or deflation in energy costs affects the Company’s gasoline sales, distribution expenses, utility expenses and plastic supply costs.

This Quarterly Report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “expect”, “anticipate”, “intend”, “plan”, “likely”, “goal”, “believe”, “seek” and similar expressions are intended to identify forward-looking statements. While these forward-looking statements and the related assumptions are made in good faith and reflect the Company’s current judgment regarding the direction of the Company’s business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Such statements are based upon a number of assumptions and estimates which are inherently subject to significant risks and uncertainties many of which are beyond the Company’s control. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company’s results. Some important factors (but not necessarily all factors) that

affect the Company’s revenues, growth strategies, future profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include business and economic conditions generally in the Company’s operating area; the Company’s ability to successfully implement its expansion and operating strategies and to manage rapid expansion; pricing pressures and other competitive factors; reduction in per gallon retail gasoline prices; the maturation of new and expanded stores; the Company’s ability to reduce costs and achieve improvements in operating results; the availability and terms of financing; increases in labor and utility costs; success or failure in the ownership and development of real estate; changes in the laws and government regulations applicable to the Company; and changes in accounting policies, standards, guidelines or principles as may be adopted by regulatory agencies as well as the Financial Accounting Standards Board.

Consequently, actual events affecting the Company and the impact of such events on the Company’s operations may vary significantly from those described in this report or contemplated or implied by statements in this report. The Company does not undertake and specifically denies any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

The Company does not typically utilize financial instruments for trading or other speculative purposes, nor does it typically utilize leveraged financial instruments. There have been no material changes in the market risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended September ~~26, 2015.~~24, 2016.

The Company maintains disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission. Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that the Company’s system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with participation of its management including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its

disclosure controls and procedures as of ~~June~~March 25, ~~2016,~~2017, the end of the period covered by this report. In making this evaluation, it considered matters previously identified and disclosed in connection with the filing of its Form 10-K for fiscal ~~2015.~~2016. After consideration of the matters discussed above, the Company has concluded that its controls and procedures were effective at a reasonable assurance level as of ~~June~~March 25, ~~2016.~~2017.

The Company is currently performing tests of internal controls over financial reporting for fiscal year ~~2016.~~ 2017.

No other change in internal control over financial reporting occurred during the Company’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


10.4		Second Amendment to the Credit Agreement dated as of December 29, 2010, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on January 4, 2011 and incorporated herein by this reference).


10.5		Third Amendment to the Credit Agreement dated as of September 6, 2012, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.5 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


10.6		Fourth Amendment to the Credit Agreement dated as of June 12, 2013, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.6 to Ingles Markets, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2013, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


10.7		Fifth Amendment to the Credit Agreement dated as of January 31,, 2014, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party ~~thereto~~thereto. (included as Exhibit 10.7 to Ingles Markets, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2013, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


10.8		Sixth Amendment to the Credit Agreement dated as of June 23, 2014, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party ~~thereto~~thereto. (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 24, 2014 and incorporated herein by this reference).


~~31.1~~	31.1	Rule 13a-14(a) Certification


~~31.2~~	31.2	Rule 13a-14(a) Certification


~~32.1~~	32.1	Certification Pursuant to 18 U.S.C. Section 1350


~~32.2~~	32.2	Certification Pursuant to 18 U.S.C. Section 1350


~~101~~	101	The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June~~March 25, ~~2016,~~2017, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated ~~Statements of Earnings;~~Balance Sheets; (ii) the Consolidated ~~Balance Sheets;~~Statements of Income; (iii) the Consolidated Statements of ~~Cash Flows;~~Changes in Stockholders Equity; (iv) the Consolidated Statements of ~~Comprehensive Income;~~Cash Flows; and (v) the Notes to the Consolidated Financial Statements.

________

* Filed herewith.

2423

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.



		INGLES MARKETS, INCORPORATED

Date: ~~August~~May 3, ~~2016~~2017		/s/ James W. Lanning
		James W. Lanning
		Chief Executive Officer and President

Date: ~~August~~May 3, ~~2016~~2017		/s/ Ronald B. Freeman
		Ronald B. Freeman
		Vice President-Finance and Chief Financial Officer

2524



	June 25,		September 26,		March 25,		September 24,
	2016		2015		2017		2016
Property, payroll and other taxes payable	$	15,640,075	$	17,882,565	$	11,012,798	$	18,883,819
Salaries, wages and bonuses payable		26,042,084		26,336,530		24,672,366		28,159,164
Self-insurance liabilities		13,940,748		14,724,793		13,501,285		14,083,047
Interest payable		2,568,031		12,623,691		12,472,683		12,406,614
Other		4,259,057		2,984,655		3,107,338		2,782,962
	$	62,449,995	$	74,552,234	$	64,766,470	$	76,315,606



Year
2018	102.875%
2019	101.917%
2020	100.958%
2021 and thereafter	100.000%

Level 1 Inputs –	Quoted prices for identical assets or liabilities in active markets.

Level 2 Inputs –	Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs –	Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.



	Carrying				Fair Value	Carrying				Fair Value
	Amount		Fair Value		Measurements	Amount		Fair Value		Measurements
Senior Notes	$	700,000	$	701,750	Level 2	$	700,000	$	700,875	Level 2
Facility Bonds		86,150		86,150	Level 2		81,620		81,620	Level 2
Secured notes payable and other		89,834		89,838	Level 2		87,665		87,665	Level 2
Line of credit payable		22,256		22,256	Level 2		7,198		7,198	Level 2
Total debt	$	898,240	$	899,994		$	876,483	$	877,358



Total retail sales for the three months ended ~~June 27, 2015~~March 26, 2016	$	~~911,698~~889,811
Comparable store sales increase (including gasoline)		~~8,982~~21,647
Effect of Easter in ~~third~~second quarter of fiscal ~~2015~~2016		(7,084)
Impact of stores opened in fiscal ~~2015~~2016 and ~~2016~~2017		~~16,175~~7,459
Impact of stores closed in fiscal ~~2015~~2016 and ~~2016~~2017		~~(6,999)~~(1,607)
Other		~~(21)~~(24)
Total retail sales for the three months ended ~~June~~March 25, ~~2016~~2017	$	~~922,751~~910,202



	Three Months Ended				Nine Months Ended
	June 25, 2016				June 25, 2016
	Class A		Class B		Class A		Class B
Numerator: Allocated net income
Net income allocated, basic	$	8,973,689	$	3,694,766	$	28,317,738	$	11,688,552
Conversion of Class B to Class A shares		3,694,766		—		11,688,552		—
Net income allocated, diluted	$	12,668,455	$	3,694,766	$	40,006,290	$	11,688,552

Denominator: Weighted average shares outstanding
Weighted average shares outstanding, basic		13,944,818		6,314,958		13,932,356		6,327,420
Conversion of Class B to Class A shares		6,314,958		—		6,327,420		—
Weighted average shares outstanding, diluted		20,259,776		6,314,958		20,259,776		6,327,420

Earnings per share
Basic	$	0.64	$	0.59	$	2.03	$	1.85
Diluted	$	0.63	$	0.59	$	1.98	$	1.85



			Increase				Increase
	Increase		(Decrease)		Increase		(decrease)
	(Decrease)		as a % of		(decrease)		as a % of
	in millions		sales		in millions		sales
Salaries and wages	$	6.4	0.67	%	$	6.4	0.68	%
Insurance					$	(1.6)	(0.17)	%
Depreciation and amortization	$	1.0	0.11	%	$	1.3	0.13	%
Taxes and licenses	$	0.9	0.09	%	$	0.8	0.08	%
Bank charges	$	0.8	0.08	%
Insurance	$	(1.3)	(0.13)	%
Advertising and promotion					$	(0.7)	(0.08)	%



Total retail sales for the ~~nine~~six months ended ~~June 27, 2015~~March 26, 2016	$	~~2,717,538~~1,806,542
Comparable store sales ~~decrease~~increase (including gasoline)		~~(8,319)~~44,367
Effect of Easter in second quarter of fiscal 2016		(7,084)
Impact of stores opened in fiscal ~~2015~~2016 and ~~2016~~2017		~~41,436~~17,045
Impact of stores closed in fiscal ~~2015~~2016 and ~~2016~~2017		~~(21,236)~~(3,029)
Other		~~(126)~~(56)
Total retail sales for the ~~nine~~six months ended ~~June~~March 25, ~~2016~~2017	$	~~2,729,293~~1,857,785


(a)	Exhibits

3.1		Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.1 to Ingles Markets, Incorporated’s Registration Statement on Form S-1, File No. 33-23919, previously filed with the Commission and incorporated herein by this reference).


3.2		Articles of Amendment to Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).

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3.4		Amended and Restated By-Laws of Ingles Markets, Incorporated (included as Exhibit 99.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on August 30, 2007 and incorporated herein by this reference).


4.1		Articles 4 and 9 of the Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.1 to Ingles Markets, Incorporated’s Registration Statement on Form S-1, File No. 33-23919, and Exhibit 3.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, File No. 0-14706, respectively, each of which were previously filed with the Commission and are incorporated herein by this reference).


4.2		Articles 2, 3, 10, 11 and 14 of the Amended and Restated By-Laws of Ingles Markets, Incorporated (included as Exhibit 99.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on August 30, 2007 and incorporated herein by this reference).

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4.3		Indenture, dated as of June 12, 2013, between Ingles Markets, Incorporated and Branch Banking and Trust Company, as Trustee, governing the 5.75% Senior Notes Due 2023, including the form of unregistered 5.75% Senior Note Due 2023 (included as Exhibit 4.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 12, 2013 and incorporated herein by this reference).


4.4		Registration Rights Agreement, dated June 12, 2013, among the Company and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Wells Fargo Securities, LLC, BB&T Capital Markets, a division of BB&T Securities, LLC and SunTrust Robinson Humphrey, Inc. (included as Exhibit 4.3 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 12, 2013 and incorporated herein by this reference).

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10.1		Credit Agreement, dated May 12, 2009, among the Company and the lenders party thereto, Bank of America, as administrative agent, swing line lender and l/c issuer, Branch Banking and Trust Company, as syndication agent, Wachovia Bank, National Association, as documentation agent, and Banc of America Securities LLC, Branch Banking and Trust Company and Wachovia Capital Markets, LLC, as joint lead arrangers and book managers (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on May 15, 2009 and incorporated herein by this reference).


10.3		Waiver and First Amendment to the Credit Agreement dated as of July 31, 2009, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).